August 27, 2007

Apologies again for the snails pace of this blog’s progress. I can burn through literature – but when it comes to reading economics, I need to stop after every ten pages to have a little lie down.

Something I’ve encountered quite a bit in my desultory reading is the idea that every sale has its corresponding purchase. Here’s Milton Friedman: “the number of pairs of shoes sold is precisely equal to the number bought. Arithmetic is arithmetic and one man’s purchase is another man’s sale.” (Capitalism and Freedom, p. 61). Obviously this makes a lot of sense, but let’s stay with it for a minute. As it happens I bought a new pair of shoes this weekend, so I’m up to speed here. Imagine that when I bought my Clarkes discount store pair of smart black work shoes I paid with a fake twenty. It looked like a regular twenty, but on close inspection bore the likeness of Montesquieu, not Adam Smith. Now, the honest but bored shop assistant didn’t notice anything wrong at the time; that evening, however, when cashing up, she spotted the forgery.

What’s happened to this sale and purchase? I’ve got my pair of shoes; I’ve paid for it with money I got from Tesco Metro (breaking a fifty). Honest Clarkes don’t put the fake back into circulation – they send it to the Bank of England. They’ve lost out.

If we choose we can now retrospectively say that this was not a sale or a purchase; it was a witting or unwitting theft. Or, if we like, we can say that this was a proper sale and purchase, and Clarkes will include the loss in the generalised section of their accounting reserved for theft and misadventure, divorcing it from this particular (untraceable) transaction. But it seems to me to make just as much sense to say that I’ve purchased some shoes, but Clarkes haven’t sold them.

I don’t think there’s any empirical fact of the matter. It’s a matter of definitions. The question is: why do economists choose to define sales and purchases as necessarily equivalent, when such deviations from the norm of exchange are a constitutive possibility of exchange itself?

If you’ve read much of this blog, you’ll be way ahead of me: I’m trolling around for a crack in the structure of economic arguments into which I can insert the thin end of the wedge of Derridean differance. Here’s Marshall again: “the element of Time… is at the centre of the chief difficulty of almost every economic problem.” And Keynes: “the importance of money essentially flows from its being a link between the present and the future.” And Derrida: “As long as the monetary specie functions, as long as one can reckon with its phenomenality, as long as one can count with and on cash money to produce effects…, as long as money passes for (real) money, it is simply not different from the money that, perhaps, it counterfeits. There is in any case no possible sense, no possible place, no possible mark for this difference, at least when the situation is framed thus, that is, in the contextual frame of this convention or of this institution.” (Given Time I: Counterfeit Money, p. 153).

There would be no money without the possibility of counterfeit money. Counterfeit money is a constitutive possibility of money as such. Counterfeit money thus insinuates itself into the as such of real money; and counterfeit money itself has no ‘as such’. “Counterfeit money is never, as such, counterfeit money. As soon as it is what it is, recognised as such, it ceases to act as and to be worth counterfeit money. It only is by being able to be, perhaps, what it is.” (op. cit. p. 87).

Like the pledge that money always forms (complete with forgeable signature), money’s function can be broken in the time it bridges. In the space between the moment I pay for something with a cheque and the moment that cheque is cleared, any number of things can break the pledge that my signature on the cheque sealed. Money is a link between the present and the future; but that link can fail; it can be illusory; and when the link is broken (as it always can be) what becomes of the supposedly necessary link between sales and purchases? Can this link be given the status of necessity?

Over at The Pinocchio Theory, Steven Shaviro has an outstanding post on Derrida’s ‘Specters of Marx’. He’s critical of the book, and I think his criticisms are cogent. Chief among them is that, although Derrida may be right to pursue his usual project of rooting out nostalgic desire for presence in Marx’s economic and philosophical writings, this analysis takes Derrida to a level of abstraction at which he is unable to engage with the specific, valuable claims Marx makes. Further, the deconstructive impulses Derrida finds at work in Marx already play a far more active and positive role in his arguments than Derrida acknowledges.

Marx, dialectician, is always on the lookout for paradox and contradiction; and the contradictions he uncovers may be of the greatest use for a deconstructive reading of economics. Take this passage, for instance, from ‘A Contribution to the Critique of Political Economy’: “The separation of sale and purchase makes possible not only commerce proper, but also numerous pro forma transactions before the final exchange of commodities between producer and consumer takes place. It thus enables large numbers of parasites [my emphasis] to invade the process of production and to take advantage of this separation. But this again means only that money, the universal form of labour in bourgeois society, makes the development of the inherent contradictions possible.” (p. 98).

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August 23, 2007

As my regular reader, James McGowan, will have noticed, the blog has lapsed into dormancy. This is largely due to work pressures. The international financial system may be in crisis, but there’s still a lot of subprime lending to do – and I’ve got to pay the bills. Normal service will be resumed eventually.

Q: What to do if you want to move your unelectably heartless political party back towards the centre ground?
A: Have John Redwood produce a policy paper.

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August 13, 2007

Since my economic self-education is proceeding at the pace of a snail, I thought I’d return to a trusty stand-by: taking pot shots at Milton Friedman’s ‘The Methodology of Positive Economics’. Here’s the passage under review today. Friedman is, recall, arguing that there’s no problem with economists deploying wildly unrealistic assumptions, since what counts, in positive economics, is not the assumptions’ truth, but their predictive value. In today’s passage, however, he’s discussing the use of the same assumptions in different disciplines: specifically “the assumption that man seeks his own interest”. A general application of such a hypothesis “gains indirect plausibility from the success for other classes of phenomena of hypotheses that can also be said to make this assumption; at least, what is being done here is not completely unprecedented or unsuccessful in all other uses.” (p. 29)

Now listen to this:

“This kind of indirect evidence from related hypotheses explains in large measure the difference in the confidence attached to a particular hypothesis by people with different backgrounds. Consider, for example, the hypothesis that the extent of racial or religious discrimination in employment in a particular area or industry is closely related to the degree of monopoly in the industry or area in question; that, if the industry is competitive, discrimination will be significant only if the race or religion of employees affects either the willingness of other employees to work with them or the acceptability of the product to customers and will be uncorrelated with the prejudices of employers. This hypothesis is far more likely to appeal to an economist than to a sociologist. It can be said to ‘assume’ single-minded pursuit of pecuniary self-interest [notice, by the way, how Friedman has moved, in the space of a page, from self interest in general to “pecuniary self-interest”, without comment or distinction] by employers in competitive industries; and this ‘assumption’ works well in a wide variety of hypotheses in economics bearing on many of the mass phenomena with which economics deals. It is therefore likely to seem reasonable to the economist that it may work in this case as well. On the other hand, the hypotheses to which the sociologist is accustomed have a very different kind of model or ideal world, in which single-minded pursuit of pecuniary self-interest plays a much less important role. The indirect evidence available to the sociologist on this hypothesis is much less favourable to it than the indirect evidence available to the economist; he is therefore likely to view it with greater suspicion.” (p. 29-30).

The first thing to notice here is that Friedman is already framing the question he poses from an economist’s point of view. “[D]iscrimination will be significant only if the race or religion of employees affects either the willingness of other employees to work with them or the acceptability of the product to customers and will be uncorrelated with the prejudices of employers.” Of course we can distinguish individuals from their communities – and we can, if we wish, imagine the prejudices of employers as analytically dissociable from those of the broader community. But it’s surely better to begin from the idea that racial or religious intolerance is pretty much impossible to understand outside the social contexts that give rise to it. When Friedman suggests that we can, for the purposes of our economic or social analysis, neatly separate the prejudices of individual employers from the prejudices of their communities, or of the social norms by which those communities create and maintain themselves, he is already proposing a highly atomistic and individualistic vision of social life: he is already looking at things as an economist, not a sociologist.

Putting that aside, however, what’s remarkable about this passage is the way it seems to torpedo Friedman’s broader thesis. Friedman imagines the hypothesis: in a competitive industry employers’ prejudices won’t play a role in hiring decisions. And he says that an economist is more likely to find this hypothesis appealing than a sociologist.

But the hypothesis is false. Of course employer prejudice plays a role in employment decisions in competitive industries. That’s why we have legislation to outlaw it. I don’t have any empirical studies to settle the matter; if anyone’s got any data they’d like to share (especially, I guess, if it undermines my case), I’d welcome it. But surely. Employers’ prejudices can be a powerful factor in hiring decisions in competitive industries. What’s to dispute?

And now here comes the problem: assuming the hypothesis is false… and assuming economists are indeed more likely than sociologists to find it plausible… this is a perfect example of why unrealistic assumptions are dangerous in economics. Here is an assumption that (let’s grant Friedman, for the moment) works well within the limited field of strictly economic analysis. But because the (unrealistic) assumption produces useful results in that field, there is a natural and strong inclination (an inclination that Friedman apparently here endorses) to apply that assumption in other fields as well. And you know what…? It’s a bad idea.

There is no impermeable boundary between strictly economic analysis and broader political or social judgement. If, as economists, we use some ridiculous, unrealistic assumption in our discipline, that assumption will not remain within its disciplinary cage. It will escape. It will roam free. It will bite and maul. This is precisely why we ought to start with realistic assumptions: because whatever assumptions we work with will influence our general views. And when economists are asked to give political advice, we want to be pretty sure they’re not operating in the realm of economic fantasy. I’ll bet you all the money in my pockets: employer prejudice plays a role in competitive industries’ hiring decisions. If economists’ assumptions make them inclined to dispute that – so much the worse for economics.

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August 11, 2007

There is a powerful tradition in Western philosophy that attempts to argue for the existence of an unchanging incorporeal world by starting from the structure of human consciousness.For the transcendental thinkers the soul must be immortal, because the soul’s synthesising power constitutes the empirical world, and so must precede it.But the idea isn’t limited to transcendental thought.Perhaps the canonical exposition is Plato’s Symposium, where the goddess Diotima interrogates Socrates on the question of the Good.

Diotima:Then may we state categorically that men are lovers of the good?Socrates:Yes, I said, we may.
Diotima:And shouldn’t we add that they long for the good to be their own?
Socrates:We should.
Diotima:And not merely to be their own but to be their own forever?
Socrates:Yes, that must follow.
Diotima:In short, that Eros longs for the good to be his own forever?
Socrates:Yes, I said, that’s absolutely true.

A number of ideas are here bound tightly together.That which the soul desires, the soul desires forever, and all for itself.If one desired something transient, then one could never possess it absolutely, for even one’s current possession of it would be shadowed by the inevitability of loss.According to Plato’s / Diotima’s logic, desire – intentionality (and thus consciousness itself) – must aim at this absolute and permanent possession.Anything less would be a rending of the self – and since a self that is constantly torn to pieces would be no self at all, the possibility of permanent possession of the good is a necessary condition for any consciousness at all.If we are to think at all, we must be able to think the eternal.For deconstruction, what is at stake in our reading of the philosophical canon is an attempt to find an alternative to this logic.The tradition says: eternity is a condition of consciousness.Deconstruction replies: universal mortality is a condition of this thought of eternity.It’s impossible to really expand on this here – if you’re interested, I commend Henry Staten’s Eros in Mourning, the first chapter of which I’m paraphrasing.But I want to say a few words about the way in which this argument informs the work of Richard Dawkins.Dawkins – one of the most vocal atheists in the world – invokes at critical moments this same canonical logic of necessary immortality.Even as he inveighs against the ‘delusions’ of those who cling to the idea of a world beyond the empirical, he is guided in his characterisation of the empirical world by a desire to locate a similarly ungainsayable foundation of consciousness.Earlier this year I read ‘The Extended Phenotype’.Two themes: The ‘selfishness’ of the gene; the ‘immortality’ of the gene.Here’s Dawkins in chapter five.“The whole purpose of our search for a ‘unit of selection’ is to discover a suitable actor to play the leading role in our metaphors of purpose.We look at an adaptation and want to say, ‘It is for the good of…’.Our quest in this chapter is for the right way to complete that sentence.… I am suggesting here that, since we must speak of adaptations as being for the good of something, the correct something is the active, germ-like replicator” (p. 91).Dawkins’s idea of an “active, germ-like replicator” is pretty empty; given his woolly definitions (p. 83), the last quoted sentence is almost tautologous.But that’s not the point.The thrust of his idea is obvious: the possibility of an indefinitely long line of copies.Since a gene, which is his central exemplar of an ‘active germ-line replicator’, is replicated (Dawkins argues) in all its essential properties, a gene can in some sense persist forever.“Whether it succeeds in practice or not, any germ-line replicator is potentially immortal.It ‘aspires’ to immortality but in practice is in danger of failing.” (p. 83).

A gene aspires to immortality.This idea is at the heart of Dawkins’s form of evolutionary explanation.We animals and humans live and die – any given death is contingent, but the fact of death is not.We are mortal.Genes, however, are not mortal.They are, in principle, immortal; and if any gene happens to ‘die’, then this fate is itself contingent.

What interests me is the force with which Dawkins presents this idea as having explanatory value.Dawkins believes that his perspective of the ‘selfish gene’ will provide explanatory insights that a rival perspective – of, say, the altruistic individual – will not.I’m sure he’s right.Yet Dawkins has remarkable confidence in the value of his perspective – a confidence that leads him to make such notorious statements as “We no longer have to resort to supersti- tion when faced with the deep problems: Is there a meaning to life? What are we for? What is man? After posing the last of these questions, the eminent zoologist G. G. Simpson put it thus:’The point I want to make now is that all attempts to answer that question before 1859 are worthless and that we will be better off if we ignore them completely.’“.It seems to me that this confidence is based on the belief that a selfish aspiration to immortality fundamentally makes more sense as a motive force than, say, altruistic self-sacrifice.This is why the explanatory chain runs from the ‘irrational’ behaviour of individuals to the ‘motives’ of the selfish genes.

Don’t get me wrong: I’m not objecting to evolutionary explanation; I’m not objecting to Dawkins’s form of evolutionary explanation.But I’m disturbed by the bludgeoning force of Dawkins’ advocacy.I don’t think this is just a product of his pugnacious personality.Dawkins’s movement from altruistic mortal intentions to the gene’s selfish aspiration to immortality puts him in the mainstream of the Western philosophical and theological tradition.Like Plato’s Diotima, Dawkins says that we cannot understand desire unless we can reduce it to the desire for eternity.

What’s this got to do with economics?Well, a few posts ago I was discussing Arrow’s impossibility theorem.I was saying (yet again) that the idea of a rationally self interested individual is ridiculous.We are all composed of conflicting drives, and therefore Arrow’s argument about the impossibility of fully rational collective choice applies equally well to individuals.I said that we don’t need Freud to tell us this: evolutionary biology will do the job just as well (and with sounder scientific credentials).

But I want to distinguish two different levels of criticism here.One level is the obvious foolishness of positing ‘rational self-interested individuals’ as economic actors.But there is also the question of what constitutes ‘rational self-interest’ itself.If we wished to criticise economics from the perspective of evolutionary psychology, we could replace classical economic explanations of human behaviour with accounts that emphasise the motives of the ‘selfish gene’.(And I’m sure there are people on the case.)But even if we did this (and it’s a worthwhile thing to do) we would remain within a certain form of metaphysical explanation: one that gives priority to self-sufficient self-interested atomic actors – and that ties the possibility of such actors to the possibility of rationality.This is a philosophical inclination that cannot be empirically refuted or affirmed.But, to my mind, it’s suspect..

When thinkers throughout history have examined consciousness, they have, often, reduced it to an eternal, unchanging, self-sustaining core.One of Darwin’s achievements was – apparently – to do away with that: Darwinism was meant to be a Copernican revolution that undermined anthropic narcissism.The theory of natural selection told us that our individual essence was contingent; by destroying the classical opposition between human and animal, it undermined the idea of an immortal human soul.But the logic that underlies the desire to believe in an immortal soul cannot be destroyed by science: if human consciousness has been denied its special status, then a new consciousness can be invented – the consciousness of the gene – and all the old properties of the immortal soul can be safely ascribed to it.In the name, ironically, of Darwinism.

I obviously don’t want to overemphasise the similarities between Plato, Dawkins and rational choice theory.God knows there are differences enough.But there are also, I think, suggestive parallels.A challenge to economics’ idea of rationality should try to take account, not only of the obvious empirical problems with economists’ theories, but also with the philosophical ideas behind them.Kenneth Arrow, student of Socrates, stands in the market place and describes its workings.The Goddess Diotima, with her invisible hand, guides his thoughts.

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August 5, 2007

I’ve read Nabokov’s work, in English, with care and wonder. I’ve read it, I hope, with the coolly passionate attention he demands. But I don’t know Russian, and “One cannot hope to understand an author if one cannot even pronounce his name.” More insistently, and famously: “None of my American friends have read my Russian books and thus every appraisal on the strength of my English ones is bound to be out of focus. My private tragedy, which cannot, and indeed should not, be anybody’s concern, is that I had to abandon my natural idiom, my untrammelled, rich, and infinitely docile Russian tongue for a second-rate brand of English, devoid of any of those apparatuses – the baffling mirror, the black velvet backdrop, the implied associations and traditions – which the native illusionist, frac-tails flying, can magically use to transcend the heritage in his own way.” In a 1942 letter to his wife, Nabokov says the same thing; and here the emotion is not recollected in tranquillity: “On the way a lightening bolt of undefined inspiration ran right through me, a terrible desire to write, and write in Russian – but it’s impossible. I don’t think anyone who hasn’t experienced these feelings can properly appreciate them, the torment, the tragedy. English in this case is an illusion, ersatz. In my usual condition – busy with butterflies, translations or academic writing – I myself don’t fully register all the grief and bitterness of my situation.”

I’ll never be able to fully enter the heart of Nabokov’s work, because the central fact of his artistic life – the agonising change of language mid career – is closed to me. (Almost all his later work thematises, in some way, this change: most obviously, and movingly, Pnin – which is, for me, his masterpiece. But think also of Ember’s efforts to translate Shakespeare in Bend Sinister; the English-Russian novelist Sebastian Knight; and Lolita, the record, he tells us, of “his love affair” with “the English language.”)

Plus, I’ve hardly read any Nabokov criticism. There’s acres of it; I’m not an academic; life is (notoriously) short. When I feel the urge to write about Nabokov I remind myself: it must, by now, have all been said before. But, you know, it’s a blog. I’m allowed to indulge myself. So: a few years ago I read Michael Wood’s ‘The Magician’s Doubts: Nabokov and the Risk of Fiction,” and there’s a passage that’s been nagging at me. It’s graceless of me to complain about the book (what insecurity, exactly, makes me phrase even praise (of Nabokov) as an attack (on Wood)?) But I want to correct a misreading. It’s been said before (it must have been). But it’s my dime, here; my party.

The Real Life of Sebastian Knight. Nabokov’s first novel in English. He wrote it in the bathroom of his Paris flat, his suitcase resting on the bidet as a desk. Nabokov’s public persona is one of gaudy triumphalism; it’s easy to forget that for many years he was the exemplary struggling artist. The leading writer of the Russian emigration had an audience scarcely big enough to provide for his family. His books were banned in the country of his language. The shift to English – as the Nazis destroyed the European heart of Russian émigré culture – was driven by economic necessity.

Sebastian Knight [spoilers ahead (of Lolita too)] [though, to be fair, we don’t really read Nabokov for the plot twists] is about a Anglo-Russian novelist writing in English. It’s a remarkable book, because we see a writer at the height of his powers forced to return to first principles. Nabokov’s anxiety is vivid: Knight, the novel implies, has harmed his talent by writing in a second language.

The agony of being caught between two languages is also the focus of the novel’s plot. Sebastian Knight has two muses. He leaves his faithful English partner Clare Bishop for a passionate romance with a mysterious Russian woman – who breaks his heart, sending him to despair and death. The metaphor is hardly obscure. Nabokov may be almost overwhelmed by the draw of his own language, but his future – his survival – demands English. In Sebastian Knight it is almost as if Nabokov is killing off the novelist in him who would succumb to the allure of Russian. (Though of course there’s infinitely more to the novel’s characters and plot than that schematic allegory.)

The book is narrated by Sebastian’s (Russian) half-brother – referred to only as ‘V’. In a key scene V burns the dead Sebastian’s papers. He discovers among them two separate bundles of love letters. This is how he – and we – become aware of the existence of Sebastian’s Russian love.

“For a wild instant I struggled with the temptation to examine closer both bundles. I am sorry to say the better man won. But as I was burning them in the grate one sheet of the blue became loose, curving backwards under the torturing flame, and before the crumpling blackness had crept over it, a few words appeared in full radiance, then swooned and all was over.
I sank down in an armchair and mused for some moments. The words I had seen were Russian words, part of a Russian sentence – quite insignificant in themselves, really (not that I might have expected from the flame of chance the slick intent of a novelist’s plot). The literal English translation would be ‘thy manner always to find…’ – and it was not the sense that struck me, but the mere fact of its being in my language.” (p. 32).

V becomes determined to track down Sebastian’s Russian lover – and much of the rest of the book will focus on this attempt. But let’s stay here, with the momentarily visible Russian phrase.

In his book Michael Wood quotes the end of this passage. He writes: “Whenever Nabokov mentions chance we probably need to wonder what he is up to, but the game here seems to be a kind of double bluff: the words are less significant than the language they are in.” (p. 40).

No they’re not. Obviously the Russian vs. English thing is at the heart of Sebastian Knight. But Wood is bafflingly blind to the significance of the Russian words.

In the book’s last chapter, V. has rushed to the dying Sebastian’s hospital, convinced that Sebastian has a great metaphysical secret to impart. He is taken, in the dark, to Sebastian’s bed, and listens to his breathing. “If I could have smoked my happiness would have been complete.” Only later does V. discover that there has been a mistake: Sebastian died the previous night… “and you’ve been visiting Monsieur Kegan…” Now here are the first lines of the book’s great last paragraph.

“So I did not see Sebastian after all, or at least I did not see him alive. But those few minutes I spent listening to what I thought was his breathing changed my life as completely as it would have been changed, had Sebastian spoken to me before dying. Whatever his secret was, I have learnt one secret too, and namely: that the soul is but a manner of being – not a constant state – that any soul may be yours if you find and follow its undulations. The hereafter may be the full ability of consciously living in any chosen soul, in any number of souls, all of them unconscious of their interchangeable burden. Thus – I am Sebastian Knight.”

In his Afterword to my Penguin edition, John Lanchester calls this “one of the strangest passages in the book”. And it is strange; but it’s also, in its own way, very straightforward. Despite his reputation for trickery and misdirection, Nabokov is in some ways a very candid writer. He tells us what he’s up to; we just have to believe him. Sometimes, I think, people take Nabokov’s expression of his real views as stylistic flourish. Take the last sentence of Lolita. “I am thinking of aurochs and angels, the secret of durable pigments, prophetic sonnets, the refuge of art. And that is the only immortality you and I may share, my Lolita.” Lolita is going to heaven; Humbert is going to hell. That’s what Nabokov believes; that’s what he has Humbert say. We have to ignore Nabokov’s protestations (in interviews; in the book’s afterword) that Lolita has no moral in tow. Humbert dies in prison, and his life beyond the grave will be a prison. Lolita dies in a town called Gray Star; that name not only evokes heaven – it contains the word ‘Grace’.

Here, in Sebastian Knight, as in Lolita (as in so many of his books) Nabokov ends by alluding to the life beyond the grave. This is the Nabokovian theme, as Brian Boyd rightly emphasises in his outstanding critical biography. In Nabokov’s metaphysics, only consciousness exists. The body dies, but thought and feeling survive; in death, our world is revealed as an illusion. But consciousness comes in many forms; and in Nabokov’s moral universe the fundamental difference is between those capable of empathy, and those who remain trapped within their own selves. Humbert’s prison after death is the prison of his own mind in life – incapable of adequately understanding Lolita’s suffering. But for those who can “find and follow” the thoughts of others, “any soul may be yours”; and, if the body has been left behind, another’s soul – any soul – can be wholly inhabited.

“the soul is but a manner of being”… “any soul may be yours if you find and follow its undulations.” Now return to the burning letter. “thy manner always to find…” It’s not a coincidence – or a double bluff – that these words in Nina’s letter so precisely echo the book’s conclusion. We indeed have here “the slick intent of a novelist’s plot.” Although not in the sense that the narrator mocks.

There’s so much more that could be said about this. But I’ll make a quick end. In trying to navigate his way between languages (“like moving from one darkened house to another on a starless night during a strike of candlemakers and torchbearers”) Nabokov invokes the aid of his metaphysics. The Russian narrator is able to write his English book because he has found and followed the undulations of its subject’s soul. And this is the “real life” that lies beyond language – the source of art. This is what underpins Nabokov’s attempt to move from Russian to English; what matters most in his art, he believes – the link between his soul and other states of being – transcends language. In an early scene the narrator imagines Sebastian sitting on a fence in Cambridge. What was he thinking? “The old, old question of Who are you? to one’s own self grown strangely evasive in the gloaming, and to God’s world around to which one has never been really introduced. Or perhaps, we shall be nearer the truth in supposing that while Sebastian sat on that fence, his mind was a turmoil of words and fancies, incomplete fancies and insufficient words, but already he knew that this and only this was the reality of his life, and that his destiny lay beyond that ghostly battlefield which he would cross in due time.”

August 3, 2007

…is that both see economic phenomena as moving towards a state of final stability. In Marxism, of course, the various crises of economic epochs are carrying us to a utopian state in which goods are justly distributed. But neoliberalism has its own dialectic, in the transformations of price, supply and demand that pave the way to general equilibrium.

According to my textbook: “When price differences are eliminated quickly, we say the market is a ‘perfect’ market… When price differences persist, markets are said to be ‘imperfect’.” (Harvey & Jowsey, p. 31-32). The inverted commas can’t disguise the ethical and political judgements behind these terms. A perfect market is not just one kind of market among many; it is the telos of all markets. As Aristotle would say, it is the exemplary market from which we can learn the essence of the market as such. And this telos of all markets is the market that itself carries a telos: the equilibrium state in which the market clears and all price fluctuations come to an end.

Of course economists know there are forces working against a perfect market’s equilibrium, just as there are forces working toward it. “Buyers and sellers neither have perfect knowledge nor act solely on the basis of price.” (p. 32). But market teleology gives these movements away from equilibrium a very different status from those toward it. The properties of a perfect market are a market’s essential properties; the properties of an imperfect market are deviations from that essence. Market imperfections are accidents or contingencies: they are not part of the law of the market; and they therefore have no place in our analysis of a market’s fundamental nature.

“What if there were, lodged within the heart of the law itself, a law of impurity or a principle of contamination? And suppose the condition for the possibility of the law were the a priori of a counter-law, an axiom of impossibility that would confound its sense, order and reason?” (Jacques Derrida, The Law of Genre, collected in Acts of Literature, p. 225). What if a market’s essence were in fact unthinkable except through the imperfections that are excluded from its overt definition? What if there were no such thing as a perfect market – not just in practice, but in principle?

Economics is not blind to the flaws in its approach. ‘Market failure’ is the reality of the market; and economists are vigilant in assimilating to their discipline the inevitable deviations from its basic theoretical matrix. Nevertheless, so long as these are treated as deviations – so long as the essentialist teleology of market perfection guides economists’ analyses – economics will have difficulty in taking full measure of what Derrida would call the law of imperfection. Economics’ teleology is pre-analytical; it is pre-empirical. It is the ideological commitment that makes much of economics, at least since Walras, and probably since much earlier, possible.

To deconstruct economics is not to reject economics; just as Derrida’s deconstructions of Western philosophy do not amount to a rejection of philosophy. Deconstruction involves, rather, a ‘change of aspect’. It involves, one might say, an act of creative destruction, which encourages theoretical innovation. By meticulously following a text’s arguments, while systematically shifting the emphases that guide these arguments, much that appears self-evident may become less so. If disequilibrium is given comparable status to equilibrium, what are the consequences for economics?

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August 2, 2007

I know what you’re thinking – why don’t I spend some time educating myself in economics, rather than banging on about the same old problems again and again, with a barely primary school level of understanding?And, you know, it’s a good point.I’m doing some reading.But I also need to get this stuff off my chest; so there’s a lot more ignorant bitching on its way.

Let’s talk about the price mechanism.I’m reading Harvey and Jowsey’s frankly elementary textbook (“an ideal entry to the subject for introductory students in business and economics”).Some quotes.

Page 19.“In this way the price system acts, as it were, like a marvellous computer, registering people’s preferences for different goods, transmitting those preferences to firms, moving resources to produce the goods, and deciding who shall obtain the final products.Thus, through the motivation of individual self-interest, the four problems inherent in economising [not worth listing] are solved automatically.”

What are the problems with the price mechanism?

p. 20:“the consumers with the most money have the greatest pull in the market.As a result, resources may be devoted to producing luxuries for the rich to the exclusion of necessities for the poor.While this is really brought about by the unequal distribution of wealth and income rather than by the market system, the fact is that the latter tends to produce, and even accentuate, such inequality.”

Note the scapegoat here.Inequality is not brought about by the market system; the market system simply maintains (or even accentuates – a very Gogolian “even”) this inequality, because it is guided by the original unequal distribution of wealth and income.Harvey and Jowsey are carefully equivocal about whether the market itself is responsible for this original distribution.

Lest we forget, money is also a commodity.The distribution of money is guided by the market mechanism.But money has a special status.Since money is the measure of value that the price mechanism employs, there is always a tendency to regard it as outside the price mechanism.It isn’t; but neither can it be entirely brought within the perspective of the price mechanism.Money is, let’s say, a quasi-transcendental.It is the transcendental subject of economics, as well as the object of its analysis. It is like the metre rule in Paris, which, according to Wittgenstein, has no length.

The distribution of money is guided by a market mechanism.But this mechanism cannot exactly be called the price mechanism.Let’s call it – far too hastily – the pre-price mechanism.(Far too hastily because, as any Derridean will tell you, the implication of temporal or logical priority that comes with this is altogether misleading.But I’ll live with that, for the moment.)There’s demand for money; and when there’s a lot of demand for money, all else being equal, money is expensive.But (since we’re not yet thinking in terms of the price mechanism) this expensiveness isn’t represented by money’s price (as in its monetary value), but rather by what else we’re prepared to give for it.If you’re starving, you’ll do anything for a dollar.This is the real ‘price’ of money, and it’s what guides the distribution of money in the ‘pre-price’ mechanism.

On page 273 (discussing something completely different) Harvey and Jowsey make the following admission:“In economics the maxim ‘to him that hath shall be given’ often holds.”On page 229, more weirdly, they’re discussing road pricing.“The relatively low-income motorist, who would now have to resort to public transport, would lose most.But why should the price-mechanism be unacceptable on account of income differences in the road price market and not elsewhere in the economy?”[Good question.]On page 207, they’re discussing the problems with government allocation of resources.“First, the one-man, one-vote principle does not weight votes according to the intensity of satisfaction gained or lost…Second, political decisions are essentially subjective.Economic efficiency in resource allocation requires that objective criteria should be used as far as possible… CBA [Cost-benefit analysis] is a technique which seeks to bring greater objectivity into decision-making.It does this by identifying all the relevant benefits and costs of a particular scheme and quantifying them in money terms.”

I promised not to be unnecessarily rude in this blog.But really.As if money has ever been a more ‘objective’ measure of satisfaction than voting.As if political decisions are more ‘subjective’ than consumers’ decisions.As if money spent on something is an even halfway adequate measure of how much it’s valued.

I’ve complained about this before.The point I’m making now is that the market mechanism for the distribution of money is itself responsible for the failure of money to adequately correspond to real valuation.The price mechanism distributes resources to those who are able to pay the most for them.The ‘pre-price’ mechanism distributes money to those who need it least.

If you’re starving you’ll do anything for a dollar.It is therefore possible to employ you in (more or less) any job, doing (more or less) anything.Those who need money most will give most for it.If you’re desperate for money, your labour will be correspondingly undervalued (relative to the labour of those in no such need).This undervaluation will then directly affect how much value you are able to place on goods within the price mechanism.The desperate need for food doesn’t (generally) lead you to place an extremely high money value on food; it leads you to place an extremely high ‘pre-price’ value on money; leading to you place (by necessity) an extremely low monetary value on actual goods.With all that follows in the operation of the price mechanism.

I know that when economists consider the value of money they adjust for purchasing power parity and all the rest of it; I’m not an idiot.My point isn’t that economists are unaware of the inadequacies of monetary valuation (although those Harvey and Jowsey quotes are a little alarming).My point is that there are two provisionally distinguishable market mechanisms in operation here, or anywhere.One, the price mechanism, which we hear so much about, has a tendency to distribute goods from those who value them little to those who value them a lot, as this valuation is measured by willingness to pay money for goods.The other mechanism – what I’m inadequately calling the ‘pre-price’ mechanism – has a tendency to distribute goods from those who value them a lot to those who value them little, because those who value them a lot are likely to have fewer tokens of value with which to influence the operation of the price mechanism. This ‘pre-price’ mechanism is just as formalisable as the price mechanism; both are in operation at all times.But which one do we hear about in the economics textbooks?

Harvey and Jowsey, page 163:“Efficiency in the allocation of resources is achieved when society has so allocated its limited resources that the maximum possible satisfaction is obtained.To ensure that no reshuffling of resources will increase satisfaction, there must be exchange efficiency, technical efficiency and economic efficiency.Let us examine what each involves and how the market economy can bring about all three simultaneously.”

Two movements: a double movement.But only one of these movements is emphasised in economics textbooks.Why?Because of the quasi-transcendental status of money.We can choose whether we treat money as transcending the field of economics or as part of it.This choice is going to be driven by ideology.And economics, by and large, chooses to treat money as if it were the transcendental subject through which the world can be observed.Economics sees through money’s eyes.Which means, in practice, that economics sees through the eyes of those with money.

This is, I would suggest, one reason why Marxism still has such a grip on the radical left: the labour theory of value is obvious nonsense, but it has the virtue of providing a theory of value that does not take its bearings from money.

A progressive economics needs to be economically literate; it needs to assimilate everything we’ve learnt since Marx.It then needs to give adequate weight to everything that mainstream economics suppresses.One example among many is what I’m calling the ‘pre-price’ mechanism.More, hopefully, to follow.

August 1, 2007

Okay: this is probably a very stupid question. But I’m going to ask it anyway. Here you’ve got an example of your basic supply curve. It shows how much of a commodity producers will supply at any given price. Yes?

The shape of the curve is determined by “the conditions of supply”. Using the example of eggs (we all love eggs) my textbook gives examples of such conditions: “Price expectations”; “A change in the prices of factors of production”; “government policy”; etc. etc.

Last, but not least: “(8) The entry of new firms into the industry. If new farms begin to produce eggs, then supply would be increased and the supply curve would move to the right.” (Harvey & Jowsey, p. 41).

Now, forgive me if I’m being slow here – but this point isn’t limited to “the entry of new firms into the industry”, is it? What Harvey and Jowsey mean is: if supply increases, the supply curve changes.

But… uh… supply is one of the axes against which the supply curve is plotted.

In his little intro to economics, Tony Cleaver likes talking about endogenous and exogenous changes. “The distinction between endogenous (internal) and exogenous (external) changes is important and will be referred to continually through this text.” (p. 36).

Can someone explain to me, then, how a change in supply is not both endogenous and exogenous here? If it’s both: how does this not completely fuck up the supply curve?

I realise that there’s a difference between hypothetical and actual supply here; and I realise there’s a difference between the supply curve of an individual firm and of the industry as a whole. But I don’t see how either of these differences resolve my bafflement.

But let’s accept, for a moment, the idea of individuals ‘rationally’ maximising their utility. What does this ‘rationally’ mean? What utility are we talking about? Or, to put it another way, when is this utility?

I’ve quoted it before and I‘ll quote it again. Alfred Marshall: “the element of Time… is at the centre of the chief difficulty of almost every economic problem.” Any rational economic actor is, at any moment, faced with a choice between maximising current utility, and maximising future utility. And this future utility is the utility of many futures: not just all the present moments that lie ahead of us, but all the possible presents that, in our ignorance, we can’t know we’ll ever reach. We are ignorant and we are mortal. Any plan for the future is guided by our uncertainty of what that future will be, and whether we will even be there for it.

How then are we to judge when or how to maximise our utility? Any postponement may be permanent. To make a choice faced with this ignorance is to introduce the doubt and risk that is at the very heart of irrationality – and of economics.

In a celebrated phrase, Alan Greenspan called the dot com boom an example of ‘irrational exuberance’. Faced with a booming stock market, everyone wants a piece of the action. It’s the same with any bubble – a bubble operates because we all want in on the action; and everybody knows that, so long as they get out fast enough, they can’t lose. How fast is fast enough? If our frame of reference is short enough – and why shouldn’t it be? we can make our fortunes – the most irrational economic behaviour (viewed as a whole) can be perfectly rational for any individual.

And what about the libertine, squandering life, mortgaging the future against present pleasure? Is that irrational? I’ve heard rumours to the effect that we could all be dead tomorrow.

My point (which I’ve made before) is that the only difference between ‘irrational exuberance’ and rational economic behaviour is the time-scale. And in economics there is no long-term.

“Irrational exuberance”: that’s as good a working definition of life as I’ve come across. Let’s start from irrational exuberance. Rational prudence is a derivative phenomenon.

“There cannot be a completely consistent meaning to collective rationality. We have at some point a relation of pure power.”

Pop quiz: who said dat? Some post-humanist enemy of the enlightenment, attacking the Hegelian idea of the liberal state? A Foucauldian theorist of power relations? Nope: it’s Kenneth Arrow, discussing his impossibility theorem. It is impossible, Arrow argued (given certain more or less plausible assumptions) to derive a rational group choice from individual preferences. “What all of this means is that, while economics can explain individual choices, it cannot explain group decision making.”

That’s Steven Pressman, in my trusty Routledge guide to ‘Fifty Major Economists’. He goes on: “Robert Paul Wolff (1970) has drawn out the implications of the impossibility theorem for political philosophy… Wolff argues that, by removing the philosophical backing for democratic decision-making, Arrow has inadvertently provided a philosophical justification for political anarchism.”

Well I’ve read Wolff’s 1970 ‘In Defense of Anarchism’ – I had to write an essay on it at university. It’s a piece of nonsense; and Wolff is certainly no anarchist. He’s a Kantian, and his so-called anarchism has precisely no political component.

Still – isn’t it strange what economics is prepared to give time to? The idea that group decision making is necessarily irrational causes not a whimper of protest from the economic mainstream; but the idea that individuals might not themselves be rationally self-interested is still a form of heresy.

It takes only the smallest modification to Arrow’s argument to transform its conclusion. Say we treat individuals not as indivisible atoms but as actors who are themselves the products of conflicting forces. Let’s say that, instead of treating a group as a collection of conflicting preferences, we see an individual in this way. Arrow’s theorem would then apply to the rationally self-interested monads of economic theory: we are all at war against ourselves, and there cannot be a completely consistent meaning to any rationality.

Would this be such a grievous admission? Wouldn’t it fit rather neatly with, you know, the world as we know it? Come on, be honest. Was Kenneth Arrow himself always of one mind?

For most economists, I’d imagine, Freudianism is one step away from voodoo. And let’s be clear – I’m not altogether impressed with penis envy or the patriarchal horde myself. But for Christ’s sake. Where did we get the idea that treating individuals as ‘rational’ was rational? Doesn’t the idea of conflicting drives within the human psyche fit better with, like, science? Isn’t that what modern evolutionary biology teaches us?

Arrow’s formula shows us how close and how distant mainstream economics is from other significant trends in modern thought. A little miscegenation, please.